Embracing Automated Underwriting

Commercial lines are up next for property & casualty insurers.

Automation implies labor-saving steps, which is usually followed by layoffs. So it should come as no surprise that some underwritersdon’t look kindly on automated underwriting solutions since the perception that has arisen is that the role of the underwriter is shrinking.

But at least one industry analyst looks at underwriting automation for commercial lines as a way to augment the talents of underwriters and provide them more information to improve the decision process.

“Part of the problem is education,” says Deb Smallwood, founder of Strategy Meets Action (SMA). “We as an industry need to get better access to external data and predictive analytics tools for commercial lines. The maturity of the data and the analytics are coming along, but they still aren’t where personal auto is at.”

Many underwriters believe they can do their jobs better without the help of automated solutions, points out Smallwood.

“When you start to get into the commercial markets, [underwriters] consider it an art vs. science issue,” she says. “But if you look at small and midsize commercial risks, there are lots of opportunities for automation. There’s been a minimal impact [on underwriters] in terms of automation.”

The workflow from automating the underwriting process improves connectivity and minimizes the back-and-forth that typically takes place between agents and underwriters, according to Smallwood.

“When information is submitted it needs to be complete and meet the risk appetite profile of the carrier,” she says. “There is a lot of back and forth going on between the two sides that is inefficient.”

Other workflow issues include the need to decrease the number of handoff within the underwriting department and to minimize the underwriters moving through multiple systems and Websites.

“Automation is there to help streamline the process,” says Smallwood.

In SMAs recent report (“Underwriting Automation: Insurer Plans and Trends”), Smallwood discovered ease of doing business for agents and brokers was rated the most important factor for insurers to simplify the submission process, but more is expected of insurers, particularly with the areas of efficiency and effectiveness.

“There is a huge gap between underwriting effectiveness and consistency,” says Smallwood. “The way you get consistency is through automated rules and workflows, bringing in some predictive models, and scoring.”

Carriers also need to take their underwriting guidelines beyond paper, points out Smallwood.

“Collaboration and sharing means having an underwriting work station and the agent portal share information and communicate beyond paper, email and phone,” she says.

Smallwood believes underwriting roles have changed over the years, yet some underwriters may be in the peak of their career and aren’t willing to change.

“There needs to be more education to explain that automation is not necessarily elimination, but that it’s needed to improve the overall underwriting process,” says Smallwood. “The roles of underwriters do change, though. They become more portfolio managers and relationship people. Unfortunately, in some cases, that’s not their strength.”

Smallwood doesn’t believe carriers are doing enough to ease the minds of the underwriters to ward automation.

“Either the head of the line of business, the CEO or the COO needs to champion this project,” she says. “If they introduce a solution they need to go slow to make sure everyone feels comfortable.”

The focus of underwriting automation for 2012 and beyond needs to be on the commercial lines, explains Smallwood.

“When the top insurance companies talk about underwriting automation, they all say they are looking at the next generation of personal lines—straight-through processing, real-time submission, and comparative raters,” she says. “When we ask about commercial lines, they say the small markets are 80 percent automated and straight-though processing is similar to personal lines with portals and real-time uploads. They say the middle market commercial lines are next.”

Most insurers segment the commercial lines into small, middle, and large markets, but most are more advanced in the small markets.

“The line between small and middle for straight-through processing is getting blurred,” says Smallwood. “With more external data, predictive analytics, and tools, they can improve automation in the middle market.”

Smallwood contends no insurer is ever finished with automation.

“I think it’s encouraging that automation continues to grow,” she says. “When you talk to mid-tier insurers—which is the majority in the insurance market—they rarely have specialty or large national accounts. Theydon’t segment in their minds between the small and middle market. The large carriers are automating differently. If you talk to a $500 million company with personal and commercial lines, they are still trying to sort through the levels of automation. They haven’t segmented the insurance the way large carriers have. The technology has finally caught up; now we need the insurers to catch up.”

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